NZD/USD Remains Depressed After Surpassing 0.5900 And Appears Precarious Near a One-Week Low

Following an intraday ascent to the region of 0.5935-0.5940, the NZD/USD pair draws new sellers and falls to a level below its one-week low during the Asian session on Friday. In contrast, spot prices have recovered a few percentage points over the past hour and are presently trading just below 0.5900, a decrease of nearly 0.15 percent for the day.

The New Zealand Dollar (NZD) encounters a degree of supply in response to the unfavourable domestic data that manufacturing sector business activity further contracted in October. The most recent Business NZ Performance of Manufacturing Index (PMI) for a non-COVID-affected month, September, recorded its lowest level of activity since May 2009, falling substantially from 45.1 in September to 42.5. Anticipations that the Reserve Bank of New Zealand (RBNZ) will maintain its policy rate unchanged in November were reaffirmed by the data. In addition to this, enduring concerns regarding the deteriorating economic situation in China impose further strain on currencies from the antipodes, such as the New Zealand dollar.

In contrast, the US Dollar (USD) maintains its position close to the weekly peak reached on Thursday and continues to be bolstered by renewed expectations of a minimum of one additional interest rate increase from the Federal Reserve (Fed). The recent hawkish remarks made by a number of Federal Reserve officials, in which they acknowledged the resilience of the US economy, alleviated the concerns. Furthermore, Federal Reserve Chair Jerome Powell expressed that while the deceleration of inflation provides policymakers with optimism, they remain uncertain as to whether the current monetary policy is restrictive enough to sustain the positive trend. This, coupled with a lacklustre auction of 30-year Treasury bonds, further inflates yields for bonds of all maturities and strengthens the dollar.

In addition to this, a generally more relaxed sentiment observed in the equity markets appears to be an additional element that supports the safe-haven dollar and aids in diverting capital flows from the perceived more volatile New Zealand dollar. Consequently, this indicates that the NZD/USD pair is likely to encounter minimal resistance on the downside, which bolsters the likelihood of a continuation of the rejection slide that began this week from the psychological threshold of 0.6000, or surpassing a three-week peak that was reached on Monday. Traders are currently anticipating the Michigan Consumer Sentiment Index to provide further guidance later in the North American trading session.